The Economist: Too much with too little

By Ray Perryman
April 13, 2013 at midnightUpdated April 12, 2013 at 11:13 p.m.

Texas is big. Really big. Whether you look at square miles, number of residents or the size of the economy, the Lone Star State is right up there at the top of the rankings of states and even most nations. Virtually everyone is projecting that population and economic growth here will exceed most parts of the United States. We are projecting the addition of about 15 million new residents by 2040, while the economy doubles (and then some). One of the crucial elements of our infrastructure that will be strained to deal with future growth is the state's system of highways and roadways.

More than 80,000 miles of highways maintained by the Texas Department of Transportation (TxDOT) provide access to the approximately 260,000 square miles within our Texas borders. About 480 million miles are driven on these roads each and every day. Last year, TxDOT spent more than $3.9 billion on construction and another $2.7 billion on maintenance. These are certainly big numbers, but that level of spending simply won't suffice in the years to come.

In order to maintain what we have and build enough to keep congestion from getting worse, we'll need to invest hundreds of billions. The Texas A&M Transportation Institute (TTI) worked with TxDOT to come up with estimates of needed spending through 2035 and found that $243 billion will be required for urban mobility and another $127 billion for rural mobility, pavement, bridge, safety and connectivity needs.

The bottom line is that current sources of funding aren't sufficient to meet needs for new construction and maintenance. Moreover, the disconnect is likely to grow worse over time. In the past, money to pay for highways was generated through motor vehicle registration fees, taxes on fuels and lubricants and federal funding. More recently, some provision was made for use of debt funds, but "pay as you go" remains the underlying mindset. In fact, the unwillingness to find new revenue sources in recent legislative sessions has resulted in borrowing reaching such levels that even some conservative legislators are now proposing tax increases to more rapidly retire the underlying bonds.

The state's portion of the gasoline tax is $0.20 per gallon, a rate unchanged since 1991. Over the past 20 years, however, construction and maintenance costs have risen without a corresponding rise in tax revenue. Compounding the problem is more fuel-efficient vehicles, which mean more miles can be driven with less tax paid.

Overly reducing spending for highways is no bargain. The TTI 2012 Urban Mobility Report indicates that commuters in Houston spent 52 hours in 2011 stuck in traffic, while those in Dallas-Fort Worth-Arlington wasted 45 hours. In other Texas cities, significant time was also lost to traffic congestion: Austin (44 hours lost in 2011), San Antonio (38), El Paso (32), McAllen (28), Beaumont (25) and Brownsville (25). When commuters in Texas throw away essentially a workweek's worth of time, there is a significant economic cost. Another issue is the unpredictability of travel time required; in some cities, it is very difficult to predict, and an accident or lane closure can set off a domino effect of delays. Other costs include the fuel that's wasted, the excess wear and tear on vehicles, extra emissions and more.

Even beyond these costs are potentially far more damaging impacts on future economic development. For many companies, traffic congestion is a consideration in location or expansion decisions. For manufacturing concerns, not being able to count on the timing of inventory movement can increase costs. For others, the negative effect traffic issues have on employee quality of life can enter into the decision.

Texas must adequately fund highway infrastructure. Maintaining is far more cost-effective than having to rebuild a totally worn-out road surface. Waiting too long to add capacity compromises safety as well as convenience. The old standard mechanisms for funding are no longer enough; tax rates haven't kept pace with inflation and fuel efficiency drives down collections.

So what is the answer? A number of solutions have been proposed by various legislators, community and business leaders and others. These include bumping up gasoline and diesel taxes, basing taxes on miles driven (rather than gallons used), shifting a portion of motor vehicle sales taxes to funds for highways and others.

No one wants an overly burdensome tax structure, but poor quality roads and traffic congestion exert their own costs, both in dollars and in less tangible ways. A long-term solution would better match the revenue generated to funds needed and is essential to long-term prosperity.

Dr. M. Ray Perryman is President and Chief Executive Officer of The Perryman Group (perrymangroup.com). He also serves as Institute Distinguished Professor of Economic Theory and Method at the International Institute for Advanced Studies.